Insight & Knowledge

A brand architecture playbook for CMOs during high M&A activity

Regardless of industry, size, or role in the value chain, every company needs a firm grip on its brand portfolio and how its brands relate to each other.

Regardless of industry, size, or role in the value chain, every company needs a firm grip on its brand portfolio and how its brands relate to each other. Unfortunately, many B2B companies put little to no thinking into this topic and improvise on a case-by-case basis, leading to companies with too many brands not structured in a meaningful way.

This is a pity because if the CMO does not own this responsibility, the company will miss out on the benefits of a well-structured and groomed brand portfolio:

– Reduced cost related to keeping too many brands alive

– Maximized brand equity and enterprise value

– Improved customer experience by making it easier for the customer to navigate the different brands and offerings

– Improved collaboration and better integration of acquired companies

How M&A creates brand dilution

Many larger companies have accelerated their M&A activity by buying scale-ups, competitors, suppliers, or downstream companies. Unfortunately, acquisitions fail to meet their targets between 70-90% of the time, depending on which study one looks at. The failure usually stems from poor management and leverage of the acquisition, yet brand, as much as any other functional discipline, also contributes to this dire picture by creating complexity in the brand portfolio. Such symptoms include:

– Brand cannibalization

– Overlap in brand associations

– Internal confusion around how the different brands operate

– Brands phased-out too late, leading to high cost, or too soon, leading to loss of revenue

The good news is that the CMO is the only stakeholder that can convert these challenges into opportunities through a firm approach to brand portfolio and architecture. This approach includes three steps:

  1. Build the brand architecture blueprint: What are the different positions, and what is the decision-logic related to selecting the optimal position for each brand, for both the short- and long-term?
  2. Apply the blueprint to the current brand portfolio: How does the existing brand portfolio map against the model today?
  3. Setup the operating model: How and when must marketing dock into the M&A process to drive and make brand-related decisions regularly?

1. Build the brand architecture blueprint

To start, the CMO must set the overall direction of the company’s brands and the manner it keeps them apart or together.

Exhibit 1 – A non-exhaustive example of the brand relationship spectrum

Brand architecture blueprint Description
Branded house (master brand) Everything carries the same brand, and all products and services refer to only one name.
Sub-brand An entity for a product/service, not as a descriptor, but a trademarkable name. The sub-brands sit beneath the master brand, so usually less critical but part of the offer. The sub-brand can account for up to 50% of the equity and awareness inside customers’ heads.

The master brand plays a dominant role, and the brand carries a secondary role

Endorsed brand The brand is the more significant entity. The master brand is still present but less essential and demonstrative, only endorsing the brand.

The brand plays a dominant role, and the master brand carries an endorsing part (“A master brand company”, “Endorsed by master brand), (“Part of master brand“), etc.

House of brands (stand-alone brand) Many different product brands and externally appear to customers as separate entities. The master brand is not present, and in the customers’ minds, it is either perceived as a holding company or merely unknown.

An important trade-off across the spectrum is the increasing level of marketing competence, investment, and skills required when moving towards house of brands. House of brands needs to be managed and invested in the most, requiring many hands and brains. These requirements become less essential in the branded house as the master brand becomes dominant.

In reality, almost all B2B companies follow a hybrid. A portfolio of products/services acting as subsets to the master brand with a handful of brands less affiliated. But, the company must have a blueprint that dictates which direction brands should go, as a standpoint.

While no absolute rules apply, Kvadrant Consulting sees three rules of thumb for an optimal brand architecture blueprint:

  1. No gaps: Ensure the company covers as much of the market with as few brands as possible.
  2. No overlaps: Avoid overlapping brands that cannibalize and discount each other, confuses customers, and waste resources.
  3. Outside-in: Design the brand architecture blueprint with external audiences in mind. Never design a blueprint that reflects legal entities or internal organizational structure. Otherwise, customers will feel the need to make sense of internal systems or jargon.

2. Apply the blueprint to the current brand portfolio

Once the CMO has established the brand architecture blueprint and anchored in the marketing team, he/she must review the current brand portfolio. This includes:

Set up criteria that determine (1) what brand architecture position each current brand must attain and (2) the speed of transition when any brand needs to change position. Ensure the criteria grasp both organizational and market dynamics. Going forward, the CMO should apply the blueprint to the current brand portfolio (bi)annually, as internal and external dynamics may change.

A growing tendency: Brand consolidation

Today, we see a growing trend of moving towards consolidating the brand portfolio due to the intense M&A activity many companies have gone through. While exceptions to the rule, there are a couple of achievable business outcomes that create a pull towards having fewer brands:

– Achieve zero cannibalization

– Improve marketing efficiency

– Spend less time on internal coordination

– Simplify offerings

– Gain accumulated brand exposures

– Easier cross- and upsell through one brand

Unfortunately, consolidating the brand portfolio is easier said than done. Corporate rigidity, inertia (“that’s how we’ve always done it”), emotional connection to brands, and risk of losing the job are natural barriers that hesitate the CMO from making the tough choice. Trust the blueprint, but be aware of two concerns:

  1. While the above arguments favor brand consolidation, CMOs should not consolidate every brand with no questions asked. While it is a standpoint, a brand decoupled from the master brand can exist if justified. Criteria such as (1) target audience, (2) brand fit with rest of brand portfolio, and last but not least, (3) brand equity must influence the decision-making process.
  2. When the master brand becomes too stretched, the CMO must build brands outside the master brand to address them. Make sure the new brand’s potential outweighs the potential upside of brand consolidation. Will their loss of outcomes outweigh the benefits of a differentiated brand? Prepare sound arguments as the C-suite might not be in favor of such a decision. An alternative solution is to remain steadfast to consolidation and create descriptive business unit differentiators instead of separate endorsed or stand-alone brands (examples: GE Healthcare, Mitsubishi Electric, Johnson & Johnson Medical Devices).

3. Define the operating model

Once the CMO has reviewed the brand portfolio, he/she must outline the governance, processes, and cadences required to make decisions related to future and incoming acquisition integrations. Hardwire the tools into an operating model that allows marketers to play a value-creating and proactive role in the M&A process in the future.

The last thing they want to discuss is what logo or color scheme the new acquisition’s brand should have. CMOs must adopt the business lingua franca to become relevant.

To do so, don’t focus on how the branding workstream can play a larger role in the M&A process but emphasize how the branding workstream can enable M&A success, both during and post-M&A.

Two key considerations when engaging with M&A processes:

  1. Be open for discussion. Once the blueprint is in place and the operating model’s execution has commenced, “higher powers” (the board, CEO, M&A & strategy team) may possess critical information that could alter decisions.
  2. Ensure buy-in from the IMO by onboarding them on the developed blueprint. Showcase the benefits of marketing’s involvement before the signing has taken place, to grant enough time to (a) assess the brand through internal and external criteria, (b) decide ideal brand architecture position and speed of transition, and (c) execute the operating model

After deal-closing and public announcement, execution speed is critical as the C-suite will pay close attention if the acquisition’s brand does not progress. Hence the operating model must follow a firm cadence with clear milestones and executive sponsorship. If caught in “brand-limbo”, time and money will be wasted.

Once the CMO has established the blueprint and operating model, he/she can become a crucial advisor to the CEO related to M&A, brand, and positioning-related questions.

At Kvadrant Consulting, we advise global B2B companies on structuring and managing their brands to unlock strategic and financial value. Feel free to reach out to one of our experts to learn more about how we work and which types of projects we have solved within this topic.

About the author
Picture of Karl Kjellerup Barfoed
Karl Kjellerup Barfoed